McDermott International, Inc. (NYSE: MDR) (“McDermott” or the
“Company”) today reported net income of $59.9 million, or $0.26 per
diluted share, for the 2010 first quarter which includes
approximately $33 million, pretax ($29.5 million, after-tax1) of
combined costs related to the anticipated spin-off of The Babcock
& Wilcox Company (“B&W”) and expenses related to safety
initiatives at, and the associated temporary stand down of,
B&W’s NFS operations. The results of the 2010 first quarter
compare to $77.7 million, or $0.33 per diluted share, in the
corresponding period of 2009. Weighted average common shares
outstanding on a fully diluted basis were approximately 234.8
million and 232.6 million in the quarters ended March 31, 2010 and
March 31, 2009, respectively.
McDermott’s revenues in the first quarter of 2010 were $1,181.9
million, compared to $1,493.3 million in the corresponding period
in 2009. The year-over-year decrease was primarily due to a 26.7
percent decline, or $189.0 million, in the Offshore Oil & Gas
Construction segment and a 22.5 percent decline, or $118.8 million,
in the Power Generation Systems segment.
The Company’s operating income was $91.8 million in the 2010
first quarter, compared to $131.2 million in the 2009 first
quarter. In Offshore Oil & Gas Construction, segment income
increased approximately 84 percent, or $37.7 million, compared to
the 2009 first quarter. Offsetting this improvement was a
year-over-year decline of $48.9 million in the Power Generation
Systems’ segment income and the $33 million of identified expenses,
which was predominantly in the Government Operations and Corporate
segments.
“McDermott’s results for the 2010 first quarter were adversely
affected by the previously announced B&W spin-off and
NFS-related expenses, but it was generally in-line with our
expectations for a light quarter. We anticipate that operating
income will improve from here during remaining quarters of 2010.
The Power Generation Systems segment hit what we believe to be
trough levels during the quarter, as it typically lags GDP, but we
believe we are beginning to see a turn in the power marketplace.
The Offshore Oil & Gas Construction segment had another
outstanding quarter, despite lower revenues,” said John A. Fees,
Chief Executive Officer of McDermott. “The Company is making
excellent progress on the previously announced spin-off of The
Babcock & Wilcox Company. We now believe McDermott is on course
for the B&W separation to be complete as early as June 30,
2010.”
At March 31, 2010, the Company’s consolidated backlog was $8.9
billion, compared to $10 billion and $8.1 billion at March 31, 2009
and December, 2009, respectively.
RESULTS OF OPERATIONS
2010 First Quarter Compared to 2009 First Quarter
Offshore Oil & Gas
Construction Segment
Revenues in the Offshore Oil & Gas Construction segment were
$519.5 million in the 2010 first quarter, compared to $708.5
million for the same period a year ago. Increased revenues in the
Asia Pacific region were more than offset by reduced levels in
other regions.
Segment income for the 2010 first quarter was $82.8 million,
compared to $45.0 million in the 2009 first quarter. Major areas
contributing to first quarter 2010 segment income include the
Middle East and Asia Pacific regions.
At March 31, 2010, segment backlog was $4.2 billion, compared to
backlog of $5.0 billion and $3.4 billion at March 31, 2009 and
December 31, 2009, respectively.
Power Generation Systems
Segment
Revenues in the Power Generation Systems segment for the first
quarter of 2010 were $409.7 million, compared to $528.6 million in
the first quarter of 2009. The year-over-year decrease was
predominantly due to reduced activity on customers’ major capital
projects, including new power plant construction and retrofits of
existing power plants.
Segment income for the 2010 first quarter was $9.3 million,
compared to $58.2 million in the 2009 first quarter. Major
activities contributing to first quarter 2010 segment income
include the supply and construction of new boilers and
environmental equipment, retrofit projects of existing facilities,
inspection and maintenance, related aftermarket parts and services
and equity income from investees. Included in the 2010 first
quarter’s segment income was $17.0 million of research &
development expenses, an increase of $7.6 million compared to the
2009 first quarter which is primarily associated with B&W’s
mPowerTM modular nuclear reactor initiative.
At March 31, 2010, segment backlog was $2.0 billion, compared to
backlog of $2.2 billion and $2.0 billion at March 31, 2009 and
December 31, 2009, respectively.
Government Operations
Segment
Revenues in the Government Operations segment were $253.3
million in the 2010 first quarter, compared to $257.1 million for
the same period a year ago.
Segment income for the 2010 first quarter was $36.0 million,
compared to $45.8 million in the 2009 first quarter. Major items
contributing to first quarter 2010 segment income include the
manufacture of nuclear components for certain U.S. Government
programs and the management and operations of various U.S.
Government sites. During the 2010 first quarter, approximately $9
million in expenses were recognized primarily related to the
temporary suspension of certain operations and the implementation
of various enhanced safety controls and processes at the Nuclear
Fuel Services, Inc. Erwin, Tennessee manufacturing facility. The
Company restarted the major components of the production line in
April 2010 and expects the down-blending facility to be fully
operational in June 2010, while we continue to expect the restart
of the last and smaller line in early 2011.
At March 31, 2010, segment backlog was $2.8 billion, compared to
backlog of $2.7 billion and $2.8 billion at March 31, 2009 and
December 31, 2009, respectively.
Corporate & Other Income
and Expense
Unallocated corporate expenses were $36.2 million in the 2010
first quarter, compared to $17.7 million in the 2009 first quarter.
The year-over-year increase was largely due to the approximately
$24 million of costs in connection with the proposed spin-off of
The Babcock & Wilcox Company.
The Company’s other expense for the first quarter of 2010 was
$3.9 million, compared to $8.9 million in the first quarter of
2009. The reduced expense was due to lower foreign currency
exchange losses.
Research & Development
Expense
Research & Development expense, net, was $17.1 million in
the 2010 first quarter, compared to $10.2 million in the 2009 first
quarter. Charged to cost of operations and primarily in McDermott’s
Power Generation Systems segment, this expense includes costs
related to B&W’s mPowerTM modular and scalable nuclear reactor
initiative, and the continued development of carbon capture and
sequestration technologies.
Upcoming Investor
Events
McDermott plans to host an analyst day on the morning of June 2,
2010 at the Grand Hyatt in New York City. Management participating
in the day’s presentations will include John Fees, Steve Johnson
(Chief Executive Officer of J. Ray McDermott, S.A.) and Brandon
Bethards (Chief Executive Officer of B&W), as well as other
senior level management.
In addition, the Company will participate in two investor
conferences later this week in New York City. On May 13, 2010,
members of McDermott’s management will participate in Macquarie
Capital’s Industrials Conference 2010. On the following day, May
14, 2010, the Company will also participate in the 5th Annual CLSA
Energy Forum 2010.
The presentations to be used during these various meetings will
be available for a limited time over the internet at
www.mcdermott.com in the investor relations section on the morning
of the respective events.
Non-GAAP
Information
1 – Footnote 1 references a $29.5 million after-tax impact
($0.124 per share) relating to the combined costs of the B&W
spin-off ($24 million pre- and after-tax) and the NFS safety
initiatives and temporary stand-down ($9 million pretax), which is
a non-GAAP calculation. In the accompanying consolidated statement
of income, the B&W spin-off costs received no tax benefit while
the NFS safety initiative and temporary stand-down pretax expenses
received an approximate 39 percent tax benefit. Thus, the $29.5
million after-tax impact of these two charges is calculated by
adding $24 million to $5.5 million, which is the product of $9
million multiplied by 0.61 (i.e. 1-0.39). To calculate the per
share amount, the $29.5 million is added to the GAAP net income,
the sum of which is divided by the number of fully diluted shares
outstanding (234.8 million). Management believes this calculation
is meaningful to allow investors to fully understand the impact of
these charges on McDermott’s net income and earnings per share.
OTHER INFORMATION
About the
Company
McDermott is an engineering and construction company, with
specialty manufacturing and service capabilities, focused on energy
infrastructure. McDermott’s customers are predominantly utilities
and other power generators, major and national oil companies, and
the United States Government. With its global operations, McDermott
operates in over 20 countries with more than 25,000 employees.
Forward Looking
Statements
In accordance with the Safe Harbor provisions of the Private
Securities Litigation Reform Act of 1995, McDermott cautions that
statements in this press release, which are forward-looking and
provide other than historical information, involve risks and
uncertainties that may impact the Company’s actual results of
operations. These forward-looking statements include statements
about backlog, to the extent backlog may be viewed as an indicator
of future revenues, our belief regarding the timing to complete the
previously announced spin-off of B&W, our expectation of
improved operating results in 2010, our belief that our Power
Generation Systems segment hit trough levels during the 2010 first
quarter and our belief that we are beginning to see a turn in the
power market. Although we believe that the expectations reflected
in those forward-looking statements are reasonable, we can give no
assurance that those expectations will prove to have been correct.
Those statements are made by using various underlying assumptions
and are subject to numerous uncertainties and risks, including
adverse changes in the markets in which we operate or credit
markets and our inability to successfully execute on contracts in
backlog. If one or more of these risks materialize, or if
underlying assumptions prove incorrect, actual results may vary
materially from those expected. For a more complete discussion of
these and other risk factors, please see McDermott’s annual and
quarterly filings with the Securities and Exchange Commission,
including its annual report on Form 10-K and quarterly reports on
Form 10-Q. This news release reflects management’s views as of the
date hereof. Except to the extent required by applicable law,
McDermott undertakes no obligation to update or revise any
forward-looking statement.
Conference Call to Discuss
First Quarter 2010 Earnings Release
Date: Tuesday, May 11, 2010, at 10:00 a.m. ET (9:00 a.m.
CT)
Live Webcast: Investor Relations section of Web site at
www.mcdermott.com
Replay: Available for two weeks in the investor relations
section of www.mcdermott.com
McDERMOTT INTERNATIONAL,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
Three Months Ended March 31,
2010
2009
(Unaudited)
(In thousands, except
shareand per share amounts)
Revenues $ 1,181,930 $ 1,493,263
Costs and Expenses: Cost of operations 934,851 1,228,622 (Gains)
losses on asset disposals and impairments – net (2,093 ) 1,241
Selling, general and administrative expenses 167,952
141,394 Total Costs and Expenses
1,100,710 1,371,257
Equity in Income of Investees 10,588
9,200 Operating Income 91,808
131,206 Other Income (Expense):
Interest income 680 2,813 Interest expense (381 ) (956 ) Other
expense – net (4,217 ) (10,770 ) Total
Other Expense (3,918 ) (8,913 )
Income before Provision for Income Taxes 87,890 122,293
Provision for Income Taxes 19,672
43,878 Net Income $ 68,218
$ 78,415 Less: Net Income attributable to
Noncontrolling Interest (8,277 ) (723 )
Net Income Attributable to McDermott International, Inc.
$ 59,941 $ 77,692 Earnings per
Share: Basic: Net Income Attributable to McDermott International,
Inc. $ 0.26 $ 0.34 Diluted: Net Income Attributable to McDermott
International, Inc. $ 0.26 $ 0.33
Shares used in the computation of earnings per share Basic
230,824,301 228,314,785 Diluted 234,753,035
232,586,245
McDERMOTT INTERNATIONAL,
INC.
SELECTED SEGMENT
INFORMATION
Three Months Ended
3/31/10
3/31/09
(Unaudited); (In
thousands)
REVENUES Offshore Oil and Gas Construction $ 519,545 $ 708,524
Government Operations 253,251 257,105 Power Generation Systems
409,731 528,573 Adjustments and Eliminations (597 )
(939 ) TOTAL $ 1,181,930 $
1,493,263 SEGMENT INCOME Offshore Oil and Gas
Construction $ 82,784 $ 45,038 Government Operations 35,953 45,752
Power Generation Systems 9,301
58,159 $ 128,038 $ 148,949
Corporate (36,230 ) (17,743 )
OPERATING INCOME $ 91,808 $ 131,206
EQUITY IN INCOME (LOSS) OF INVESTEES (1) Offshore Oil and
Gas Construction $ (3,431 ) $ (1,145 ) Government Operations 9,478
8,702 Power Generation Systems 4,541
1,643 TOTAL $ 10,588 $ 9,200
PENSION EXPENSE (1)
Offshore Oil and Gas Construction $ 1,953 $ 2,177 Government
Operations 11,684 12,158 Power Generation Systems 16,012 15,315
Corporate 4,698 4,598
TOTAL $ 34,347 $ 34,248
DEPRECIATION & AMORTIZATION (1) Offshore Oil and Gas
Construction $ 20,049 $ 19,760 Government Operations 10,707 11,243
Power Generation Systems 5,050 4,335 Corporate 1,056
684 TOTAL $ 36,862
$ 36,022 RESEARCH & DEVELOPMENT, NET (1) $
17,127 $ 10,240
CAPITAL EXPENDITURES
Offshore Oil and Gas Construction $ 47,544 $ 41,359 Government
Operations 14,863 5,246 Power Generation Systems 3,252 12,333
Corporate 867 2,450 TOTAL
$ 66,526 $ 61,388 BACKLOG
Offshore Oil and Gas Construction $ 4,191,814 $ 5,043,788
Government Operations 2,782,610 2,698,580 Power Generation Systems
1,969,362 2,220,517 TOTAL
$ 8,943,786 $ 9,962,885
(1) Included in Segment Income
Above
McDERMOTT INTERNATIONAL,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
ASSETS
March 31, December 31,
2010
2009
(Unaudited) (In thousands) Current
Assets: Cash and cash equivalents $ 775,980 $ 899,270 Restricted
cash and cash equivalents 96,040 69,920 Investments 12 12 Accounts
receivable – trade, net 550,275 642,995 Accounts and notes
receivable – unconsolidated affiliates 9,614 5,806 Accounts
receivable – other 66,211 68,035 Contracts in progress 408,479
400,831 Inventories 97,874 101,494 Deferred income taxes 107,236
100,828 Other current assets 72,132 68,730
Total Current Assets 2,183,853
2,357,921 Property, Plant and Equipment 2,655,474 2,608,740
Less accumulated depreciation 1,295,906
1,271,135 Net Property, Plant and Equipment 1,359,568
1,337,605 Investments 178,566
228,706 Goodwill 325,760 306,497
Deferred Income Taxes 265,971 275,567
Investments in Unconsolidated Affiliates 93,139
86,932 Other Assets 268,103
255,882 TOTAL $ 4,674,960 $ 4,849,110
McDERMOTT INTERNATIONAL,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
LIABILITIES AND STOCKHOLDERS'
EQUITY
March 31, December 31,
2010
2009
(Unaudited) (In thousands) Current
Liabilities: Notes payable and current maturities of long-term debt
$ 13,558 $ 16,270 Accounts payable 366,355 471,858 Accrued employee
benefits 126,101 217,178 Accrued pension liability – current
portion 213,188 173,271 Accrued contract cost 96,858 103,041
Advance billings on contracts 578,538 689,334 Accrued warranty
expense 122,164 118,278 Income taxes payable 71,128 64,029 Accrued
liabilities – other 176,882 155,773
Total Current Liabilities 1,764,772
2,009,032 Long-Term Debt 55,092
56,714 Accumulated
Postretirement Benefit Obligation 106,461
105,605 Self-Insurance 89,044
87,222 Pension Liability 573,311
610,166 Other Liabilities
148,091 147,271 Contingencies
and Commitments Stockholders’ Equity:
Common stock, par value $1.00 per
share, authorized 400,000,000 shares; issued 237,800,603and
236,919,404 shares at March 31, 2010 and December 31, 2009,
respectively
237,801 236,919 Capital in excess of par value 1,323,712 1,300,998
Retained earnings 1,011,588 951,647
Treasury stock at cost, 6,435,903
and 6,168,705 shares at March 31, 2010 and December 31,
2009,respectively
(73,725 ) (69,370 ) Accumulated other comprehensive loss
(596,845 ) (612,997 ) Stockholders’ Equity –
McDermott International, Inc. 1,902,531 1,807,197 Noncontrolling
interest 35,658 25,903 Total
Stockholders’ Equity 1,938,189
1,833,100 TOTAL $ 4,674,960 $ 4,849,110
McDERMOTT INTERNATIONAL,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
2010
2009
(Unaudited)(In thousands) CASH FLOWS FROM OPERATING
ACTIVITIES: Net Income $ 68,218
$ 78,415 Non-cash items included in net income: Depreciation
and amortization 36,862 36,022 Income of investees, less dividends
(5,327 ) (1,142 ) (Gains) losses on asset disposals and impairments
– net (2,093 ) 1,241 Provision for deferred taxes 4,903 38,407
Amortization of pension and postretirement costs 22,859 21,970
Excess tax benefits from FAS 123(R) stock-based compensation (2,556
) (134 ) Other, net 14,236 13,159 Changes in assets and
liabilities, net of effects of acquisitions and divestitures:
Accounts receivable 79,095 90,367 Net contracts in progress and
advance billings on contracts (122,333 ) (208,063 ) Accounts
payable (98,651 ) (85,830 ) Income taxes 8,591 (16,717 ) Accrued
and other current liabilities 11,486 29,767 Pension liability,
accumulated postretirement benefit obligation and accrued employee
benefits (89,091 ) (43,281 ) Other, net (4,794 )
18,906 NET CASH USED IN
OPERATING ACTIVITIES (78,595 )
(26,913 ) CASH FLOWS FROM INVESTING ACTIVITIES: Increase in
restricted cash and cash equivalents (26,120 ) (8,490 ) Purchases
of property, plant and equipment (66,526 ) (61,388 ) Net decrease
in available-for-sale securities 51,147 49,007 Acquisition of
businesses, net of cash acquired (9,612 ) - Proceeds from asset
disposals 3,985 279 Other, net -
(1,055 ) NET CASH USED IN INVESTING ACTIVITIES
(47,126 ) (21,647 ) CASH FLOWS
FROM FINANCING ACTIVITIES: Payment of long-term debt (2,325 )
(4,825 ) Issuance of common stock 620 160 Payment of debt issuance
costs (683 ) (19 ) Excess tax benefits from FAS 123(R) stock-based
compensation 2,556 134 Other -
943 NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 168
(3,607 ) EFFECTS OF EXCHANGE RATE CHANGES ON CASH
2,263 (5,858 ) NET DECREASE IN
CASH AND CASH EQUIVALENTS (123,290 ) (58,025 ) CASH AND CASH
EQUIVALENTS AT BEGINNING OF PERIOD 899,270
586,649 CASH AND CASH
EQUIVALENTS AT END OF PERIOD $ 775,980
$ 528,624 SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION: Cash paid during the period for: Interest (net of
amount capitalized) $ 398 $ 1,124 Income taxes (net of refunds)
$ 15,099 $ 19,786
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